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Legal Court Judgement

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Category: Legal Court Judgement

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ITC is restricted when diagnostic or investigative services are provided – AAR

ITC is restricted when diagnostic or investigative services are provided – AAR

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.

However, will ITC be available when the applicant is involved in providing exempt services? Let us refer to the advance ruling of Siddalingappa Palalochana Rakshit (Bangalore Medical System) (GST AAR Karnataka) where M/s Bangalore Medical Systems (applicant) filed an application for Advance Ruling on the issue that whether ITC would be available to him or not, considering the fact that he was providing certain exempt services.

Facts of the Case:-

  • The applicant is a proprietary concern having brand name of “Bangalore Medical System” and registered under GST.
  • They are into supply of medical consumables (goods) in addition to provision of diagnostic services.
  • The applicant established a medical diagnostic laboratory to carry out diagnostic or investigative services of diseases the premises of the Kidwai Memorial Institute of Oncology, a Karnataka Government hospital.
  • The applicant provided the service of diagnostic testing on the samples sent by the hospital. They charged the hospital for the services rendered.
  • They were allotted space to establish & set up a complete Molecular Diagnostic Laboratory.
  • All the equipments would be purchased by the applicant and installed at the lab in Kidwai Hospital.
  • The responsibility of running the lab with all necessary technical staff was on the applicant.
  • The applicant received the samples from the patients and issued respective reports and charged Kidwai Hospital as per the approved prices.

The applicant has sought advance ruling in respect of the following questions:-

  • Can the applicant avail GST Input on the equipments, furniture etc. which we are purchasing for this?
  • Can the applicant avail GST input on the reagents/ consumables they would be purchasing for performing the tests as the reagents / consumables are taxable and not the test?
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Submissions by the Applicant:-

  • The applicant claimed that the services being provided to the Institute (hospital) were exempted from GST.
  • Further a lot of fixed assets in the form of instruments, furniture’s and fixtures were purchased and capitalized in the books of accounts.
  • Thus they were capital goods and hence applicant was eligible to claim ITC on the inward supply of such capital goods.

Reference to Notification No. 12/2017- Central Tax (Rate) by the AAR

AAR proceeded to examine whether the diagnostic services supplied by the applicant to the aforesaid hospital were covered under Entry no. 74 of Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017.

According to Entry no. 74, Services by way of-

  1. Health care services by a clinical establishment, an authorized medical practitioner or paramedics;
  2. Services provided by way of transportation of a patient in an ambulance were exempt from the levy of GST

Observations of the AAR on whether the applicant provided health care services or not

According to the said notification, “health care services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and includes services by way of transportation of the patient to and from a clinical establishment, but does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma.

In the instant case the services provided by the applicant were by way of diagnosis of an illness and hence the same were covered under “health care services”

Observations of the AAR on whether the applicant was a clinical establishment or not

AAR proceeded to examine whether the applicant fell under “clinical establishment”, which was defined in clause (s) of paragraph 2 of the said Notification

According to the Notification “clinical establishment” means a hospital, nursing home, clinic, sanatorium or any other institution by whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out diagnostic or investigative services of diseases;”

In the instant case the applicant established a medical diagnostic laboratory to carry out diagnostic or investigative services of diseases. Thus the applicant qualified to be a clinical establishment.

Observation of the AAR on whether ITC was available to the applicant or not

  • It was clear that the services provided by the applicant were covered under clause (a) of Entry no. 74 of the Notification No. 12/2017-Central Tax (Rate) and hence were exempt from tax under GST.
  • The applicant was involved in taxable as well as exempted supplies.
  • Section 17(2) of the CGST Act, 2017 stipulated that the amount of credit be restricted to the input tax attributable to the taxable supplies including zero rated supplies.
  • According to Section 17(2), when the goods, services or both were used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies, then the amount of credit shall be restricted to the input tax that is attributable to the said taxable supplies including zero-rated supplies.
  • Therefore the applicant had to restrict the credit to the amount attributable to taxable supplies including zero rated supplies in the case of capital goods as well as reagents/consumables or drugs.
  • Further if the applicant claimed depreciation on the tax component of capital goods and plant & machinery, under Income Tax Act 1961, the input tax credit on the said tax component shall not be allowed, in terms of Section 16(3) of the CGST Act 2017.

Therefore, the applicant was eligible for input tax credit on the tax paid on the purchases of goods, i.e. equipments, furniture, etc. which were purchased for this project and also on the reagents / consumables which were used for performing the test, subject to the restriction of the same in terms of Section 17(2) of the CGST Act 2017.

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Land cannot be held as an agricultural land to claim the exemption from capital gains tax, if it is not carrying out agricultural operations

Land cannot be held as an agricultural land to claim the exemption from capital gains tax, if it is not carrying out agricultural operations

Capital gains tax is a levy assessed on the positive difference between the sale price of the asset and its original purchase price. Under section 2(14)(iii) of the Income Tax Act, “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include an agricultural land in India, not being a land situated-

  1. in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the 1st day of the previous year ; or
  2. in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;

Let us refer to the case of Jairam G Kimmane v. Deputy Commissioner of Income Tax, Central Circle-1(3) where the issue under consideration was whether the land/property sold by the assessee was an agricultural land and thus was not eligible to capital gains tax?

Facts of the Case

  • The assessee is an individual.
  • In the course of assessment proceedings, the AO noticed that assessee received a sum of Rs 2 crores on sale of 0.40 hectares (ha) of land at Raigad District, Maharashtra.
  • Since capital gain on sale of the property had not been disclosed in the ITR, the AO called upon the assessee to explain why the same was not declared.
  • The assessee took a stand that the property was an agricultural land and therefore was not a capital asset and capital gain on sale of agricultural land was not eligible to tax.

Observations of the AO

  • AO was of the view that the main business of assessee was trading in arecanut.
  • The Assessee owned the land in question for more than 16 years and had not offered any agricultural income from the said land.
  • The assessee had not brought any material on record to show that he conducted agricultural operations/activities over the property.
  • In the vicinity of assessee’s land were leisure and entertainment spots where there were lot of holiday homes, home stay and resorts.
  • The sale value of the property @ Rs. 2 Crores was not a value which was generally offered by persons who were agriculturists and who purchased agricultural land.
  • The assessee did not bring any documentary evidence on record to suggest basic agricultural operations like tilling, ploughing, weeding, planting, etc. were conducted during the period of ownership nor was there evidence to show that the assessee deployed peasants to conduct agricultural operations.
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  • The Assessee pointed out that Agricultural land in India was outside the purview of the definition of capital asset u/s.2(14)(iii).
  • The Assessee took a stand that Agricultural activities were carried out on the property and was therefore an Agricultural land.
  • The AO did not dispute the fact that the property is not situate within the jurisdiction of a municipality or a cantonment board and therefore did not fall within the exclusion clause or that it was within 8 kms from the local limits of any municipality.
  • There was no dispute that the property did not fall within clauses of Sec.2(14)(iii)(a) or (b).
  • The mere fact that a land was situated in an area outside the area referred to in clause (a) or (b) of section 2(14)(iii), did not automatically make it an Agricultural land
  • To be called an agricultural land, the land must have been used for Agricultural purposes.
  • According to the AO, the Assessee did not establish use of the land for agricultural purpose and other circumstances showed that the Assessee’s land was not agricultural land and was sold as a capital asset and not as agricultural land and hence the gain on sale of the property was chargeable to tax as income under the head “Capital Gain”.

On appeal by the Assessee, the CIT(A) agreed with the view of the AO. Therefore, assessee appealed before the Income Tax Appellate Tribunal (ITAT).

Reference to Sarifabibi Mohmed Ibrahim v. CIT (SC) by ITAT

There was no dispute that the property that was sold by the Assessee did not fall within clauses of Sec.2(14)(iii)(a) or (b). The mere fact that a land is situate in an area outside the area referred to in clause (a) or (b) of sec.2(14)(iii) of the Act, did not automatically make it an Agricultural land. Such land has to be used for agricultural purposes as laid down in several judicial pronouncements.

The Supreme Court in Sarifabibi Mohmed Ibrahim v. CIT (SC) laid down the principles to be followed in deciding the question as to what can be construed as “Agricultural land” as under:-

In as much as agricultural land is exempted from the purview of the definition of the expression “assets”, it is impossible to adopt so wide a test as would obviously defeat the purpose of the exemption given”. The idea behind exempting the agricultural land is to encourage cultivation of land and the agricultural operations. In other words this exemption had to be necessarily given a more restricted meaning. What is really required to be shown is:-

  • the connection with an agricultural purpose and user and not the mere possibility of user of land by some possible further owner or possessor, for an agricultural purpose
  • It is not the mere potentiality but its actual condition and intended user which has to be seen for purposes of exemption
  • The person claiming an exemption of any property of his from the scope of his assets must satisfy the conditions of the exemption
  • The determination of the character of land, according to the purpose for which it is meant or set apart and can he used, is a matter which ought to be determined on the facts of each particular case
  • The fact that the land is assessed to the Land Revenue as agricultural land under the State Revenue Law is certainly a relevant fact but if is not conclusive

Reference to Commissioner of Income-Tax v. V.A. Trivediby ITAT

  • In this case the assessee had purchased the 7 acres of land in February 1966. The land was covered by the Nagpur Improvement Trust Scheme.
  • In August 1966 he obtained permission to convert the said land to non-agricultural use. In June 1968 he entered into an agreement with a Housing Cooperative Society to sell 3 acres out of it.
  • The sale-deed was executed in October 1968.
  • In the assessment proceedings the assessee claimed that the surplus income arising from the sale of land was exempt from tax as it was agricultural land at the time of its sale.
  • The matter reached the High Court. The Division Bench referred to several facts established from the record.
  • The Bench observed that to ascertain the true character and the nature of the land, it must be seen whether it was put to use for agricultural purposes for a reasonable span of time prior to the relevant date and further whether on the relevant date the land was intended to be put to use for agricultural purposes for a reasonable span of time the future.
  • The Bench held that the agreement entered into by the assessee with the Housing Society was the crucial circumstance since it showed that the assessee agreed to sell the land to Housing Society admittedly for utilization for non-agricultural purposes.
  • The sale-deeds were executed four months after the agreement of sale and even if any agricultural operations were carried on within the said span of four months
  • The Bench held that it was evidently in the nature of a stop-gap arrangement.
  • On the date the land was sold, the Bench held, the land was no longer agricultural land which was evident from the fact that the assessee had obtained permission even in August 1966 to convert the said land to non-agricultural purposes.

Observations of the ITAT

  • In the present case, the claim of the Assessee that agricultural operations were carried out over the property and the property was actually used for agricultural purpose was sought to be established by relying on the classification of the property in revenue records.
  • The Revenue contended that there was no evidence of the Assessee carried out agricultural activities over the property.
  • The Assessee had not established as to how agricultural activities were carried out and what expenses were incurred in carrying out agricultural operations over the property.
  • The revenue also contended that the Assessee had not declared any income from Agriculture from the property in question
  • There is no evidence of availability of Agricultural produce and how they were dealt utilized. The Revenue also contends that the burden of proof that the property was agricultural land at the time of transfer to claim exemption was on the Assessee.
  • The question whether the land was Agricultural land was to be decided on facts of each case and decided cases are only guidelines to be kept in mind.
  • In the given case, large number of circumstances may be indicative of agricultural character, but one circumstance may outweigh all of them and on its basis the land would be held to be a non-agricultural land.
  • If one considers the facts and circumstances of the present case as a whole and an overall view is to be taken in deciding whether the land was an agricultural land, one would come to a conclusion that the property could not be considered as Agricultural land.
  • Though the circumstance that the land was classified as Agricultural in the revenue records was in favour of the assessee, in ITAT’s view, the other circumstances pointed out outweighted all of the circumstances in favour of the Assessee
  • On the basis of those circumstances, ITAT concluded that the property was not an agricultural land.

In conclusion, land cannot be held as an agricultural land to claim the exemption from capital gains tax, if it is not carrying out agricultural operations.

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No GST is applicable on Transportation charges recovered from employees

No GST is applicable on Transportation charges recovered from employees

Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.

Certain situations when ITC cannot be claimed:-

  • A person cannot avail ITC wherein the given motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver)
  • A person cannot claim ITC for the tax paid for the following:-
  • Food and beverages
  • Outdoor catering
  • Beauty treatment
  • Health services
  • Cosmetic and plastic surgery
  • Services of general insurance, servicing, repair and maintenance
  • Sale of membership in a club, health, fitness centre
  • Rent-a-cab services, life insurance, health insurance
  • Travel, benefits extended to employees on vacation such as leave or home travel concession.
  • Works contract services for construction of immovable property
  • Construction of immovable property on own account
  • Composition scheme
  • Non residents
  • Supply for personal use
  • Free samples and goods destroyed
  • Restaurant services

Now, an important point mentioned above for which ITC will not be available will be when the motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver). Let us refer to the case of Tata Motors Limited (GST AAR Maharashtra) where an appeal was filed before the Authority of Advance Ruling (AAR) on whether ITC will be available on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen person for transportation of employees to & from workplace.

Facts of the Case and reasons of Appeal:-

  • Applicant had engaged service providers to provide transportation facility to its employees in non AC buses having seating capacity of more than 13 persons.
  • Appeal was filed to the AAR on the following grounds:-
  • Whether input tax credit (ITC) available to Applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen person for transportation of employees to & from workplace?
  • Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus?
  • If ITC is available as per question no. (1) Above, whether it will be restricted to the extent of cost borne by the Applicant (employer)?
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Observations of the AAR on whether applicant was entitled to avail ITC of the GST paid to the service providers

  • To answer the question AAR referred to the provisions of Chapter V of the CGST Act, 2017 comprising of Sections 16 to 21.
  • Section 16 of the CGST Act, 2017 contained provisions with respect to eligibility and conditions for taking ITC.
  • According to Section 16(1), ITC in respect of receipt of services is available and can be taken. However, the credit is available subject to such conditions and restrictions and in the manner specified in Section 49 of the CGST Act.
  • AAR had no doubt that in this case, the supply of services received by the applicant was used in the course or furtherance of their business and therefore prima facie, they were eligible to take credit of GST charged by their suppliers.
  • However, AAR found that the applicant was eligible to take ITC under the provisions of the CGST Act.
  • AAR wanted to verify whether Section 17(5) debarred the applicant from taking credit.
  • Section 17(5) debarred ITC on motor vehicles or conveyances used in transport of passengers till the date of the amendment i.e. 01.12.2019.
  • However with effect from 01.12.2019, ITC was allowed on leasing, renting or hiring of motor vehicles, for transportation of persons, having approved seating capacity of more than 13 persons (including the driver).
  • Therefore in this case, since the applicant had specifically submitted (as agreed by the jurisdictional officer), that they were using motor vehicles having approved seating capacity of more than 13 persons (including the driver), the applicant shall be eligible for ITC in this case.
  • However AAR made it clear that if the motor vehicle hired by them does not have an approved seating capacity of than 13 persons (including the driver), then in that case the applicant would not be eligible for ITC.

Observations of the AAR on whether GST was applicable on nominal amount recovered by Applicant from their employees for usage of employee bus transportation facility in non AC bus

  • Applicant had submitted that they issued pass only to their employees, so that the transportation facility could be used by such employees, for which nominal amount was recovered on monthly basis.
  • They have also submitted that once, employee stopped to be in employment with Applicant, he/she was not authorized to use the transportation facility.
  • In other words, employer-employee relationship was a must to avail this facility.
  • AAR found that the applicant was not providing transportation facility to its employees, in fact the applicant was a receiver of such services in the instant case.
  • The applicant’s contention that they were eligible for exemption from GST under SI No. 15(b) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 in respect of nominal amounts of recoveries made from their employees towards bus transportation service, was not correct.
  • According to SI No. 15(b), Transport of passengers, with or without accompanied belongings, by non air-conditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire was exempt from GST.
  • The exemption under the said notification was available only when the supply was taxable in the first place.
  • In the subject case, the transaction between the applicant & their employees, due to “Employer-Employee” relation as stated by the applicant in their submissions, was not a supply under GST Act.
  • AAR referred to Schedule III to the CGST Act which listed activities which shall be treated neither as a supply of goods nor a supply of services.
  • As per clause 1 of the Schedule-Ill, services by an employee to the employer in the course of or in relation to his employment shall be treated neither as a supply of goods nor a supply of services.
  • Since the applicant was not supplying any services to its employees, in view of Schedule III, AAR was of the opinion that GST was not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.

Observations of the AAR if ITC was available to the applicant whether it would be restricted to the extent of cost borne by the Applicant

  • The applicant, citing the decision of the High court of Bombay in the case of CCE Nagpur vs Ultratech Cements Ltd (2010) (Bom) had submitted that ITC was not admissible to Applicant on part of cost borne by employee and thus ITC would be restricted to the extent of cost borne by the Applicant.
  • The jurisdictional officer had also endorsed the view of the applicant and AAR found no reason to deviate from the view expressed by both, the applicant as well as the jurisdictional officer

In conclusion,

Input tax credit (ITC) was available to Applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than 13 persons for transportation of employees to & from workplace but only after 01.02.2019. The ITC will be restricted to the extent of cost borne by the Applicant (employer)

GST is not applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus.

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HC imposes cost for Filing Petition which was out of its territorial Jurisdiction

HC imposes cost for Filing Petition which was out of its territorial Jurisdiction

High Courts are the highest courts in a state. They are an important part of the judicial system in India. Articles 214 to 231 in the Indian Constitution talk about the High Courts, their organization and powers. The Parliament can also provide for the establishment of one High Court for two or more states. 

The High Courts are the highest courts of law in the state or union territory in which they are situated or have jurisdiction. Their judgments have legal effect within the territories of the states and/or union territories over which they have jurisdiction.

The High Courts hear civil and criminal appeals from subordinate courts under their control. The High Courts of Delhi, Bombay, Calcutta, and Madras however have original jurisdiction in civil cases of certain monetary value. Every High Court has original jurisdiction in revenue matters (Article 225) as well as those relating to admiralty, matrimony, probate, and contempt of court and election petitions. Significantly, other than the Supreme Court, High Courts are the only courts entrusted with writ jurisdiction for enforcing fundamental rights as well as for other purposes under the Constitution (Article 226). This jurisdiction of the High Courts is wider than that of the Supreme Court.

Let us refer to the case of Vijay Goverdhandas Kalantri & Another Vs Union of India & Others (Punjab and Haryana High Court) where the issue under consideration was whether the filing of the petition without jurisdiction only to gain benefit of its interim order is sustainable in law?

Facts of the Case

  • It was contended by the petitioners that they were disqualified from acting as Directors in a company (respondent 4)
  • The Advocate of Union of India pointed out to the Court that both the petitioners were residents of Mumbai and the company (respondent 4) from which the petitioners were disqualified to act as Directors, was also registered with the Registrar of Companies, Mumbai (respondent 3)
  • He also pointed out that the Registrar of Companies, Punjab and Chandigarh (respondent 2) was included as a party only to secretively create jurisdiction of this Court.
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  • However, the Registrar of Companies, Punjab and Chandigarh (respondent 2) had no connection with the present case and this Court had no jurisdiction to entertain the present petition.
  • The petitioners contended that since they wished to invest in a company within the jurisdiction of this Court, therefore, the present petition was filed.

Observations of HC of Punjab and Haryana w.r.t Article 226

  • The counsel for the petitioners was unable to show how the petition was maintainable before the Punjab and Haryana HC.
  • There was no ground whatsoever made out for invoking the jurisdiction of this Court under Articles 226/227 of the Constitution of India as neither the petitioners were residents of Punjab, Haryana or UT Chandigarh nor was the company (respondent 4) registered with the Registrar of Companies, Punjab and Chandigarh (respondent 2).
  • Jurisdiction of the High Court is limited to the territorial jurisdiction of the State(s) of which it is the High Court.
  • According to Article 226(1) of the Constitution of India, every High Court shall have powers, throughout the territories in relation to which it exercises jurisdiction, to issue to any person, authority or any Government, within those territories directions, orders or writs for the enforcement of any of the rights conferred by Part III and for any other purpose.
  • The power conferred by Article 226(1) to issue directions, orders or writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories.
  • Thus, Article 226 of the Constitution of India, in clear terms, empowers the High Court to entertain a petition if the cause of action to file such a petition against the respondents of the said petition has arisen wholly or in part within the territorial jurisdiction of the High Court.

Reference to the case of ONGC vs. Utpal Kumar Basu, (1994)

  • The Apex Court held thaton a plain reading of the aforesaid two clauses of Article 226 of the Constitution it became clear that a High Court can exercise the power to issue directions, orders or writs for the enforcement of any of the fundamental rights conferred by Part III of the Constitution or for any other purpose if the cause of action, wholly or in part, had arisen within the territories in relation to which it exercises jurisdiction, notwithstanding that the seat of the Government or authority or the residence of the person against whom the direction, order or writ is issued is not within the said territories.
  • The image and prestige of a court depends on how the members of that institution conduct themselves.
  • If an impression gains ground that even in cases which fall outside the territorial jurisdiction of the court, certain members of the court would be willing to exercise jurisdiction on the plea that some event, however trivial and unconnected with the cause of action had occurred within the jurisdiction of the said court, litigants would seek to abuse the process by carrying the cause before such members giving rise to avoidable suspicion.
  • That would lower the dignity of the institution and put the entire system to ridicule.
  • SC set aside the order of the High Court and directed that the writ petition would stand disposed of for want of jurisdiction.

Reference to the case of Aligarh Muslim University vs Vinay Engineering Enterprises Private Limited

  • The Supreme Court held that the High Court of Calcutta should not have exercised jurisdiction in a case where it had absolutely no jurisdiction.
  • The contracts in question were executed at Aligarh, the construction work was to be carried out at Aligarh, even the contracts provided that in the event of dispute the Aligarh Court alone will have jurisdiction.
  • The arbitrator was from Aligarh and was to function there. Merely because the respondent was a Calcutta-based firm, the High Court of Calcutta seems to have exercised jurisdiction where it had none by adopting a queer line of reasoning.
  • According to the SC this was a case of abuse of jurisdiction and they felt that the respondent deliberately moved the Calcutta High Court ignoring the fact that no part of the cause of action had arisen within the jurisdiction of that Court.
  • Thus the litigation filed in the Calcutta High Court was thoroughly unsustainable.

Observations w.r.t the present case

  • In the present case the counsel for the petitioners was been unable to show as to what part of the cause of action arose within the territorial jurisdiction of this Court.
  • The present writ petition seemed to have been filed only to gain benefit of the interim order passed by the Court in ‘Gurdeep Singh & Ors. Vs. Union of India & Anr.’ and other similar cases though the initiation of the writ proceedings before this High Court was clearly unsustainable and an abuse of jurisdiction.
  • The filing of the present writ petition before the High Court was not genuine and hence was dismissed.
  • HC imposes cost of Rs 1 lakh to be deposited with the PM Cares Fund for Filing Petition which was out of its territorial Jurisdiction

Therefore, filing of the petition without jurisdiction only to gain benefit of an interim order or any other case is not sustainable in law.

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No interest for tax paid under wrong head – Jharkhand HC

No interest for GST tax paid under wrong head – Jharkhand HC

The GST law was implemented from July 1, 2017. The GST replaced multiple taxes which were levied earlier. GST law has a varied of provisions which could be considered complex in certain situations.

Lack of knowledge about the procedures of GST could lead to certain mistakes. IGST tax is payable on inter-state supplies, while CGST and SGST/UTGST in payable on intra state supplies. Will there be an interest liability if IGST is wrongly deposited under CGST? Let us refer to the case of Shree Nanak Ferro Alloys Pvt. Ltd. Vs Union of India (Jharkhand High Court) to find out the same.

Facts of the Case:-

  • The petitioner was a company registered under the provisions of the CGST Act and the IGST Act.
  • The dispute related to the month of September, 2017, i.e., soon after the implementation of the aforesaid Acts, wherein the petitioner filed its GSTR-1. Subsequently, the petitioner submitted its GSTR- 3B.
  • However, in the liability shown under the IGST there was a deficient liability amounting to Rs.41,98,642.42, whereas in CGST the excess was shown to the tune of Rs.41,98,643.71 and the tax were also paid accordingly.
  • This remained unnoticed for a period of about one year, and subsequently by a letter, the petitioner Company was informed that in course of audit, it was observed after the scrutiny of GSTR-I and GSTR-3B filed by the petitioner, that the petitioner had short paid IGST to the tune of Rs.41,98,842 and accordingly, the petitioner was asked to make the payment along with the interest.
  • The said letter was replied by the petitioner Company by a letter whereby it was informed that the Company had actually paid the amount of the IGST of Rs.41,98,643, but inadvertently it was paid under the head of CGST, instead of IGST, and as such it was not a case of short payment, rather, it was the case of payment of IGST under a different head.
  • It was also stated in the letter that this mistake had occurred in the early phase of implementation of the GST, and accordingly, the adjustment of the said amount may be made in the appropriate head.
  • The petitioner aggrieved by the letter issued by the Superintendent (CGST), whereby the petitioner was saddled with the liability to pay the short paid IGST, amounting to Rs.41,98,642, along with due interest, failing which, appropriate action under the Provisions of the Central Goods & Services Tax Act, 2017, and the Rules framed there under, was to be initiated against the petitioner for recovery of the IGST amount along with due interest filed a petition before the HC.

Observations of HC on the provisions of law

Having heard learned counsels for both the sides, we think it appropriate to quote some of the necessary provisions which have been referred to, by learned counsels for the parties

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Section 49 of CGST Act pertains to payment of tax, interest, penalty and other amounts

According to Section 49:-

  • Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit, debit cards, NEFT, RTGS or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed.
  • The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41 or section 43 to be maintained in such manner as may be prescribed.

Section 77 of CGST Act explains Tax wrongfully collected and paid to Central Government or State Government:-

According to Section 77:-

  • A registered person who has paid the CGST and SGST or, as the case may be, the CGST and the UTGST on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.
  • A registered person who has paid IGST on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of CGST and SGST or, as the case may be, the CGST and the UTGST payable.

Section 19 of the IGST Act pertains to tax wrongfully collected and paid to Central Government or State Government

According to Section 19:-

  • A registered person who has paid IGST on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of IGST so paid in such manner and subject to the conditions as may be prescribed.
  • A registered person who has paid CGST and SGST or UTGST, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of IGST payable.

According to Rule 92(1) of the CGST Rules, where upon an examination of the application, the proper officer is satisfied that a refund under section 54(5) is due and payable to the applicant, he shall make an order in FORM GST RFD-06 sanctioning the amount of refund to which the applicant is entitled, mentioning therein the amount, if any, refunded to him on a provisional basis under section 54(6), amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable.

Observations of HC of the present case

  • HC found that the petitioner Company had discharged their tax liability under the IGST head, but inadvertently had deposited the amount under the CGST head.
  • The petitioner had not concealed the transaction or had not committed any fraud in discharging its tax liability.
  • It was a plain case in which the tax was paid by the petitioner to the Central Government, but not under the IGST head, rather under the CGST head.
  • The contention of counsel for the CGST was that there was some ulterior motive behind the deposit of tax under the CGST head, which was evident from the fact that the petitioner had filed its GSTR-1 in which the tax liability was correctly shown, showing the supply to be the inter-State supply, but the stand was changed in the form GSTR-3B.
  • From the letter, issued by the Superintendent (CGST), it was apparent that for discharging his liability of tax, the petitioner had deposited cash in its electronic cash ledger.
  • It was the claim of the petitioner that this happened due to the fact that it was the initial stages of the GST regime that the cash was deposited in the electronic cash ledger of CGST head.
  • There appeared to be substance in the submission of the petitioner, as by deliberately depositing the cash in the electronic cash ledger for the CGST head instead of IGST head, possibly no benefit was going to be derived by the petitioner.
  • According to HC, they were not in a position to doubt the authenticityof the petitioner, as due to the initial stage of the CGST regime, there might be some confusion, and the cash was wrongly deposited in the wrong electronic cash ledger
  • However, HC found from the plain reading of Section 49(3) and (4) of the CGST Act, that counsel for the CGST may be right in his contention that under Section 49 (3) of the CGST Act, the ‘electronic cash ledger’ may be used for making the payment of the tax and the other liabilities under this Act only, i.e., CGST Act.
  • There was no provision of cross utilization of the fund as in case of ‘electronic credit ledger’ under Section 49 (4) of the CGST Act.
  • However, Section 77(1) of the CGST Act, read with Section 19(2) of the IGST Act, clearly laid down that a registered person who had paid the CGST, treating the transaction to be intra-State supply, as in the case of the petitioner, but which turned out to be inter-State supply, was entitled to the refund of the amount of tax so paid, under Section 77 (1) of the CGST Act, and at the same time such person cannot be saddled with the liability of interest in view of the provision of Section 19(2) of the IGST Act.
  • The contention of the counsel for the CGST was that these provisions were for the persons acting bona fide, may also be accepted, but there was nothing on the record of this case to show that the petitioner had not acted bona fidely, particularly in view of the fact that the transaction related to the early stages in which the GST regime had been implemented, and there might be some confusion prevailing at that initial stage.

HC did not find any plausible reason whatsoever, to deny the petitioner Company the benefit of the provisions of Section 77 (1) of the CGST Act, read with Section 19(2) of the IGST Act

HC directed the petitioner to deposit the amount of Rs. 41,98,642 under the IGST head within 10 days, towards the liability of September, 2017. The petitioner shall not be liable to pay any interest on the said amount. The petitioner shall also be entitled to get the refund of the amount of Rs.41,98,644 deposited by them under the CGST head, or they may get the amount adjusted against their future liabilities, in accordance with law, as they may choose.

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Benefit from scrapped flat deal is taxable as capital gains – Mumbai ITAT

Benefit from scrapped flat deal is taxable as capital gains – Mumbai ITAT

Capital gain is the profit one earns on the sale of an asset like stocks, bonds or real estate. It results in capital gain when the selling price of an asset exceeds its purchase price. It is the difference between the selling price (higher) and cost price (lower) of the asset. Capital loss arises when the cost price is higher than the selling price.

The sale of capital assets may lead to capital gains and these gains may attract tax under the Income Tax Act. To save tax on these capital gains, a few capital gains exemption/deductions are available under sections 54, 54B, 54D, 54F etc. As per the provisions of these sections, the amount is required to be reinvested in specified investment types before the specified period. However, if the due date of filing income tax returns falls before the expiry of the specified period, the amount of capital gains is required to be invested temporarily in the Capital Gains Account Scheme which can be easily withdrawn at the time of investment in the specified instrument.

Let us refer to the case of Mukesh Sohanraj Vardhan, Mumbai vs Income Tax Officer (2020) (Mumbai ITAT) where an appeal filed by the assessee directed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] on the ground that the CIT(A) had wrongly denied  exemption under Section 54 of the Income Tax Act and consequently adding LTCG and treating the same as “Income from Other Sources”

Facts of the Case and Assessment Proceedings:-

  • During 2005, the appellant had acquired a flat for a total consideration of Rs.30,00,000 from M/s Vardhaman Estate Corporation (Builder).
  • The said Builder had issued an allotment letter stating therein the terms and conditions for sale of the said flat to the appellant.
  • At the time of the allotment letter issued by the said builder, the appellant had paid earnest money of Rs.10,00,000 and Rs.20,00,000 towards purchase of the said flat.
  • Thereafter in 2011, the appellant cancelled the booking of the aforesaid flat and treated the same as a sale for a total consideration of Rs.48,75,000.
  • He invested Rs.75,53,469 in purchase of new flat, claiming exemption u/s 54, after availing indexation benefit for cost of the flat paid in installments.
  • During the course of assessment proceedings, the Assessing Officer (AO) asked the appellant to explain why the benefit received on cancellation of deal with the builder should not be treated as income from other sources, instead of long term capital gains, as no purchase as well as sale agreement has been entered into by the assessee with the builder.
  • In response to it, the appellant explained to the AO that a capital asset in the form of interest in the flat came into existence by virtue of allotment letter issued by the builders, when payment was made
  • However, the AO was not convinced with the above explanation of the assessee and came to a finding that the gain which the appellant received from the builder on cancellation of deal has resulted in benefit of compensation of Rs.18,75,000 and the same was nothing but income from other sources.
  • Further on analysis of the bank account of the appellant, the AO noticed that the assessee had actually received from the builder total amount of Rs.52,75,000.
  • Thus the AO brought to tax Rs.22,75,000 (Rs.52,75,000 – Rs.30,00,000) on account of benefit of compensation received by the appellant from the builder in respect of the property under the head “Income from other sources”.
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Proceedings of CIT(A)

Aggrieved by the order of the AO, the appellant filed an appeal before the CIT(A).

The CIT(A) observed that the allotment letter cannot be called as an allotment letter as:-

  • the same is a plain letter with no details of commencement certificate issued by the Municipal Corporation
  • the land details are not recorded
  • authenticity of address of builder not established – telephone number/PAN/Registration Number etc. not recorded in the document
  • paragraph 3 of the allotment letter spells out certain conditions, it is not met which includes execution of agreement
  • in the course of hearing details of such agreement arising out of paragraph 3 of the purported allotment letter was sought to which it was stated as not available
  • the details of flat (area, amenities, specifications etc. are not recorded, (vii) the total sum payable is not mentioned
  • the document is not registered; there is no registration of any allotment agreement at any time
  • the assessee has not signed the purported letter of allotment
  • it is the assessee who signed in his capacity as partner of the builder firm.

Thus the CIT(A) arrived at a finding that the incomplete, non- registered “letter of allotment” cannot be treated as an “allotment letter” for deciding ownership of capital assets. Further, it was observed that the above documentary evidence did not establish ownership of capital assets and hence the question of assessment of capital gains did not arise.

Further, the CIT(A) held that the AO has rightly brought to tax the incremental receipt as income from other sources. Aggrieved with the order of the CIT(A), assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT)

Reference to earlier case by ITAT

  • Similar issue arose before the Tribunal in Ashwin S. Bhalekar (supra).
  • In that case, the assessee was allotted a flat vide allotment letter.
  • The assessee had paid advance amounting to Rs.50,00,000 on the allotment of the said flat.
  • By virtue of the said allotment, the assessee had acquired right to the proposed flat.
  • The construction of the building was yet to commence on the date of allotment.
  • Due to various delay in regulatory approvals, the builder could not obtain permission to construct the building upto 17th floor.
  • The assessee surrendered the right to receive the flats and the builder cancelled the allotment of the above flats and agreed to pay the compensation for an amount of Rs.1,10,00,000 on account of surrender of such flats.
  • In addition to the above, the builder transferred the initial advance of Rs.50,00,000 to the new flat in the same project which the assessee agreed to buy.
  • The assessee then invested the said money to acquire a flat in the same project for Rs.1,53,03,800 vide an agreement registered on 29.02.2012.
  • The AO did not accept the claim of the assessee and treated the compensation on surrender of flats amounting to Rs.1,10,00,000 as income from other sources.
  • On appeal by the assessee, the CIT(A) accepted his claim.
  • Appellant had relied on CBDT Circular No.471 dated 15.10.1986 where it was held that property acquired by allotment letter was considered as capital asset for the purpose of exemption from capital gains.
  • It was held that surrendering of allotment of flat had to be considered as a right in property which was a capital asset and any capital gain arising from that capital asset and if appellant purchases new flat then appellant is eligible for exemption u/s 54.
  • Therefore, the appellant was eligible for claiming of exemption u/s 54 of the Act.
  • AO was directed to compute the surplus amount received from surrender of flat as capital gain and also allow exemption claimed by the appellant u/s 54.
  • Hence, AO’s addition of Rs.1,10,00,000 is deleted and the appeal of the assessee was allowed.
  • Aggrieved with the order of the CIT(A), Revenue appealed before the ITAT
  • ITAT noted that the above narrated facts were undisputed.
  • The facts clearly showed that the extinguishment of assessee’s right in the proposed building known allotted vide allotment letter was actually extinguishment of any right in relation to capital asset in view of the provisions of section 47  which fell in the definition of transfer and hence, resulting in capital gain chargeable under section 45.
  • ITAT found that the CIT(A) had rightly deleted addition made by the AO in regard to disallowance of the claim of the assessee disallowing deduction of long term capital gain under section 54 of the Act on the premise that the compensation received is income from other sources.

The facts of the present case being identical, ITAT followed the above order of the Co-ordinate Bench and allowed the appeal.  In conclusion, in an assessee books a flat and then cancels the deal with the builder and benefits by receiving a sum higher than the earnest amount paid, the excess will not be treated as a tax-free income. The excess consideration received will be taxed as capital gains.

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Delhi HC set asides disqualification of directors to enable them to continue the business as per CFSS

Delhi HC set asides the disqualification of directors to enable them to continue the business in pursuance of the Companies Fresh Start Scheme, 2020

A company has no physical existence; it is merely a legal entity. The person acting on the company’s behalf is called a Director. Under company law, a director can be disqualified due to any of the following reasons:

  • He is of an unsound mind and is declared so by the court
  • He is insolvent
  • He is in the process of declaring insolvency and his application is pending
  • He has been convicted by a court of any offence (whether or not involving moral turpitude) and has been imprisoned for at least six months. However, if a person has been convicted of any offence and has served a period of seven years or more, he shall not be eligible to be appointed as a director in any company
  • If an order has been passed disqualifying him of being appointed as a director by a court or Tribunal
  • He has not paid any calls with respect to any shares of the company held by him, whether alone or jointly with others, and a period of six months has elapsed from the last day fixed for the payment of the call
  • He has been convicted of offences dealing with related party transactions at any time during the last preceding five years
  • He has failed to acquire a Director Identification Number.

Once disqualified, a person is not eligible for being appointed as Director of that company or any other company. This restriction is imposed for a period of five years or as the case may be. Since the year 2017, the Ministry of Corporate Affairs (MCA) has been strictly enforcing these provisions of the Companies Act.

Let us refer to the case of Sandeep Agarwal and anr vs Union of India, where petition was made before the Delhi High Court to cancel the disqualification of the directors.

Facts of the Case

  • The present petition was filed by the Petitioners – Mr Sandeep Agarwal and Ms Kokila Agarwal, both of whom are directors in two companies namely Koksun Papers Private Limited and Kushal Power Projects Private Limited.
  • Kushal Power was struck off from the Register of the Companies on 30th June, 2017, due to non-filing of financial statements and annual returns.
  • The Petitioners, being directors of Kushal Power were also disqualified with effect from 1st November, 2016 for 5 years till 31st October, 2021 under Section 164(2)(a) of the Companies Act, 2013.
  •  Pursuant to their disqualification, their Director Identification Numbers (DIN) and Digital Signature Certificates (DSC) were also been cancelled.
  • Hence, they were unable to carry on the business and file returns etc. in the active company Koksun Papers.
  • By the present petition, the disqualification of the directors was challenged

Submissions by the Petitioner

  • Petitioners relied upon Sections 164(2) and 167(1)(a) and submitted that the said sections were materially amended by the Companies Amendment Act, 2018, and introduction of the disqualification in proviso under Section 167(1)(a), came into effect only on 7th May, 2018.
  • Thus, in respect of the companies, in which the Petitioners were already directors, a conjoint reading of Section 164(2) and 167(1)(a) would show that the disqualification would not apply in a retrospective manner.
  • Petitioner relied upon the judgment of this Court in Mukut Pathak & Ors. v. Union of India & Ors (2019).
  • Moreover, Koksun Papers was entitled to take benefit of the Companies Fresh Start Scheme (CFSS) 2020  dated 30th March, 2020 introduced by the Ministry of Corporate Affairs (MCA), whereby active companies were permitted to make good any defaults in filing of documents and seek immunity from disqualification.
  • However, the directors, who had to sign the papers for Koksun Papers, were disqualified and their DINs and DSCs were deactivated.
  • As a result, Koksun Papers was not able to avail the benefit of the said Scheme.

Submissions by MCA

  • MCA submitted that the judgment in Mukut Pathak (supra) was challenged by way of an appeal by the Ministry and the said LPA was pending, though no stay was granted.
  • MCA also relied upon the recent order passed by the Division Bench in two writ petitions i.e. Anamika Devi v. Union of India. & Anr[ 2020] and Gaurav Kumar v. Union of India & Anr [2020] to argue that the disqualification list having been notified in 2017, the challenge to the same was extremely belated, hence the writ petition deserved to be dismissed.

Observations of the HC on the cases referred by the petitioner

  • The judgment in Mukut Pathak (supra), as far as the merits of the case were concerned, was squarely applicable in the present case.
  • The said judgment clearly held that the proviso to Section 167(1)(a) of the Act cannot be read to operate retrospectively.
  • It was further held that the said proviso, being a punitive measure with respect to the rights and obligations of directors, cannot be applied retrospectively unless the statutory amendment expressly provides so.
  • The judgment in Mukut Pathak (supra) has been squarely followed in Kailash Singhal & Anr. v. Union of India & Anr [2020] and Rajendra Kumar Agrawal v. Union of India & Anr [2020].

Observations of the HC on the cases referred by the MCA

Coming to the effect of the order of the Division Bench in Anamika Devi (supra) and Gaurav Kumar (supra), relied upon by the MCA, the Division Bench in the said two writ petitions had observed as under:

  • Both the petitions were filed by the petitioners praying inter alia that Union of India and the Registrar of Companies be directed not to treat them as “disqualified Directors” under the provisions of Section 164 of Companies Act.
  • Further, the petitioners sought issuance of a writ of mandamus, quashing publication of their names in the List of disqualified Directors, uploaded and published on the website of the respondents in September, 2017.
  • The petitioners also sought directions to the respondents to unfreeze their DIN and DSC thereby enabling them to file the documents and returns on behalf of the companies on which they were serving as Directors.
  • The Division requested the petitioners to address on the maintainability of the present petitions in view of the delay on the part of the petitioners in approaching the court for relief and that too when the List of disqualified Directors was uploaded and published on the website of the respondent as long back as in September 2017.
  • The explanation offered by the petitioners was that they were unaware of the publication of the aforesaid List till recently. However there was no explanation offered in the petition for the delay.
  • The aforesaid submission was not acceptable. Ignorance cannot bestow any benefit on a litigant and nor can it be a ground to condone a delay of almost three years in approaching the court for relief.
  • The petitioners were disqualified for a period of five years. By now, a little over one year of the period of disqualification was left to expire. But no steps were taken by the petitioners to seek legal recourse in all this duration.
  • Powers of judicial review vested in the court were discretionary in nature and in particular facts and circumstances, the court can decline to exercise the said power more so, when a party approaches the court for relief with a delay of almost three years, without an explanation worth the name for the said delay.
  • For the aforesaid reasons, the Division Bench declined to entertain the present petitions on the ground of delay, which was accordingly dismissed.

A perusal of the above order of the Division Bench showed that the Division Bench held that the filing of the writ petition was very belated, but at the same time the Court held that powers of judicial review were discretionary and the question of delay was to be examined in the particular facts and circumstances of each case

Observations of the HC on the Companies Fresh Start Scheme (CFSS)

The Companies Fresh Start Scheme (CFSS) was a new scheme, which was notified on 30th March, 2020. This Scheme was not invoked before the Division Bench. The scheme was obviously launched by the Government in order to give a reprieve to such companies who had defaulted in filing documents and they were allowed to file their requisite documents and to regularize their operations, so as to not face disqualification. The Scheme also envisaged non-imposition of penalty or any other charges for belated filing of the documents. The salient features of the Scheme were:

  • It was been launched to facilitate a fresh start, on a clean slate, for companies registered in India
  • Alleviative measures under the Scheme were for the benefit of all companies. It gave an opportunity to file belated documents in the MCA-21 Registry in respect of annual filings, without being subject to higher additional fee on account of delay
  • It granted immunity from launch of prosecution or of proceedings for imposition of penalty on account of delay associated with certain filings. For the said filings, only normal fee would be payable
  • Any defaulting company could file the belated documents, which were due for filing on any given date, as per the Scheme. Normal fee would be payable for such filing by the defaulting company under the Companies (Registration Offices and Fee) Rules, 2014 and no additional fee shall be payable;
  • To the extent that any prosecution was launched or penalty was imposed for the delay associated with the filings of belated documents, it provided that the same shall not be launched and immunity shall be provided
  • Applications can be made for seeking immunity in respect of belated documents.
  • Once the documents were taken on file or approved by the designated authority, such applications would have to be filed within 6 months from the date of closure of the Scheme
  • To avail benefit of the Scheme, the defaulting company would have to withdraw any appeal that it may have filed against prosecution launched or orders passed by a court or adjudicating authority under the Act
  • If a final notice of striking off of a company was already been initiated or in certain other situations as enumerated in Clause 6(ix), the Scheme would not apply
  • If immunity was granted, the Scheme provides that prosecution shall be withdrawn before the concerned Court and the proceedings for penalties shall also be closed.
  • The Scheme also extends to inactive companies who can file the requisite documents and get themselves declared as dormant companies under Section 455 or apply for striking off the name of the company.

This Scheme provides an opportunity for active companies who may have defaulted in filing of documents, to put their affairs in order. It thus provides Directors of such companies a fresh cause of action to also challenge their disqualification qua the active companies.

Observations of the ITAT

  • In the present case, the Petitioners were Directors of two companies – one whose name was struck off and one, which was still active.
  • In such a situation, the disqualification and cancellation of DINs would be a severe impediment for them in availing remedies under the Scheme, in respect of the active company.
  • The purpose and intent of the Scheme is to allow a fresh start for companies which have defaulted.
  • In order for the Scheme to be effective, Directors of these companies ought to be given an opportunity to avail of the Scheme.
  • The launch of the Scheme constituted a fresh and a continuing cause of action.
  • Under such circumstances, the question of delay or limitation would not arise.
  • The Division Bench did not have an occasion in the case of Anamika Devi (supra) and Gaurav Kumar (supra) to consider this Scheme.
  • In view of the fact that in the present case, the Petitioners are directors of an active company Koksun Papers in respect of which certain documents are to be filed and the said company is entitled to avail of the Scheme, the suspension of the DINs would not only affect the Petitioners qua the company, whose name has been struck off, but also qua the company which is active.
  • Thus, the facts and circumstances of this case were different from the facts in the case before the Division Bench.
  • Considering the COVID-19 pandemic, the MCA has launched the Fresh Start Scheme-2020, which ought to be given full effect.
  • It was not uncommon to see directors of one company being directors in another company.
  • Under such circumstances, to disqualify directors permanently and not allowing them to avail of their DINs and DSCs could render the Scheme itself nugatory.
  • In order to enable the Directors of Koksun Papers i.e. the Petitioners herein, to continue the business of the active company Koksun Papers, in the fitness of things and also in view of the judgment in Mukut Pathak (supra), the disqualification of the Petitioners as Directors was set aside.
  • The DINs and DSCs of the Petitioners were directed to be reactivated, within 3 working days.
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Wife could be the best guardian for her husband who is comatose – Bombay HC

There is no doubt that the wife could be the best guardian for her husband who is comatose – Bombay HC

The Bombay High Court recently made relevant observations regarding marriage while allowing a woman to act as her incapacitated husband’s guardian.

The extraordinary jurisdiction of the Court under Article 226 of the Constitution was invoked, given that the wife had approached the High Court directly in the matter instead of first approaching a lower court. Let us refer to the case of Rajni Hariom Sharma Vs. Union of India and another (Bombay High Court) to understand the same in detail.

Facts of the Case:-

  • The Petitioner’s husband is in a vegetative state, showing no signs of his revival from a coma.
  • Apart from her husband, the petitioner has two sons, one of whom is a minor, and a mother-in-law suffering from ailments.
  • Her husband suffered a cardiac arrest while jogging, leading to sudden unresponsiveness.
  • He was later rushed to the hospital, where he underwent treatment including surgeries for three months from which he could not recover, though his condition stabilized after three months.

Submissions by the Petitioner:-

  • The petitioner was having a hard time with mounting medical bills and household expenses without hardly any income of her own.
  • Even after her husband was discharged after three months from the hospital he continued to remain in a vegetative state.
  • As per the medical advice, it was necessary to arrange all facilities like observation under trained paramedic personnel along with physiotherapy and speech therapy.
  • Despite all of these, her spouse continued to be in a comatose state.
  • However, all the expenses incurred during this time were substantial as she had to create a well-equipped AC nursing room with amenities like a recliner bed, air mattress, and life-saving support systems.
  • Further, a full-time nurse and part-time physio and speech therapist were appointed for the treatment.
  • Additionally, other household expenses included her mother-in-law’s age-related ailments and children who were fully dependent on her and she had the responsibility to maintain it all without any income of her own.
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  • Petitioner had only 10% shares in the company called M/s. Solus Security Systems Private Limited.
  • Income earned by her through such shareholding was not sufficient to meet the expenses.
  • Since the husband was in a comatose condition, he was not in a position to use his intellect, converse and sign various documents.
  • Accordingly, petitioner was required to act as his guardian so as to safeguard the business and other interests of her husband and also to look after her family.
  •  When the petitioner requested the bank to allow her to put signature in place of her husband’s, it was turned down and she was advised to approach the competent court to get her appointed as the guardian of her husband.
  • On a query by the Court on what basis she was invoking writ jurisdiction of the Court, the petitioner submitted that there was no statutory provision relating to appointment of guardian of a person who is in a state of coma or lying in a vegetative state.
  • Therefore, a writ court exercising jurisdiction under Article 226 of the Constitution of India would be in the best position to grant relief to the petitioner.

Submissions by the Respondents:-

The respondents argued that though there was nothing to contest about the factual narrative of the petitioner, the maintainability of the writ petition was in question as the relief sought was in nature of a private relief, and invoking a public law may not be justified enough.

Observations of the High Court that there was no legislation relating to appointment of guardians to patients lying in a vegetative state

  • The counsel appearing on the behalf of the petitioner thus provided that the petitioner was in the just position to be appointed as a guardian by virtue of being the wife considering his comatose condition for over two years with no sign of revival.
  • The council also maintained that as there was no statutory provision concerning the appointment of a guardian for a person in a vegetative state.
  • Therefore, only a writ court exercising jurisdiction under Article 226 of the Constitution was the best possible way to sought and provides relief to the petitioner.
  • After hearing both the parties, the bench stated that the state of being in a coma cannot be construed that such a person is a physically challenged person or a mentally challenged person as is understood under the relevant statutes. Nor such a person can be construed to be a minor for the purpose of appointment of guardian.
  • It was quite evident that the relevant statutes relating to the appointment of guardians would not be applicable in cases associated with persons lying in a comatose condition or in a vegetative state.
  • In fact, there was a consensus at the Bar that at present there was no legislation in India relating to appointment of guardians to patients lying in comatose or vegetative state.

Reference to Civil Procedure Code, 1908

  • In Civil Procedure Code, 1908, there is Order XXXII-A dealing with suits relating to matters concerning the family. As per Rule 1(1), Order XXXII-A shall apply to suits or proceedings relating to matters concerning the family.
  • As per Rule 1(2)(c), provisions of the said Order shall apply to a suit or proceeding in relation to guardianship of a person or the custody of any minor or other member of the family, under a disability.
  • However, the word ‘disability’ was explained though the word “family” was.
  • As per Rule 6, for the purpose of Order XXXII-A, each of the instances mentioned therein shall be treated as constituting a family, such as, a man and his wife living together; any child or children being issue of theirs; or of such man or such wife; and any child or children being maintained by such man and wife.
  • From a reading of Order XXXII-A, a view may be taken that for appointment of guardian of a person who is a member of the family and is under a disability, a suit or a proceeding may be filed in which event provisions of Order XXXII-A would be applicable.
  • However, instead of filing a suit under the Code of Civil Procedure, 1908, petitioner has invoked the writ jurisdiction of this Court under Article 226 of the Constitution of India.

Can writ jurisdiction of this Court be invoked under Article 226 of the Constitution of India?

  • The HC reminded everyone of the width and abundance of the power of the High Court’s under Article 226 of the Constitution of India.
  • Under Article 226(1), every High Court within its territorial jurisdiction has the power to issue directions, orders or writs to any person or authority including any government for the enforcement of fundamental rights and for any other purpose.
  • Thus, a High Court while exercising writ jurisdiction under Article 226 of the Constitution of India may issue any direction or order in addition to a writ to any person besides an authority including any government not only for the enforcement of any fundamental right but for any other purpose.
  • When the High Court exercises jurisdiction under Article 226 of the Constitution of India, it does so to further the cause of justice.
  • To provide justice is the most important purpose of the courts.
  • Thus, HC was of the view that reliefs sought for by the petitioner were reasonable and may be granted considering the peculiar facts and circumstances of the case.

Reference to Hindu Vedic Philosophy by the High Court

  • The Court, while accepting that there was no express legislation for deciding the guardian for a person on appointing guardians to patients lying in a comatose or vegetative state, the Hindu law could provide a basis for the same.
  • According to Hindu Vedic philosophy, marriage is a sanskar or a sacrament. What is essentially contemplated is a union of two souls.
  • The eternal being is composed of two halves i.e., the man and the woman. Both the halves are equal and one-half is incomplete without the other.
  • The Vedic philosophy reflects marriage as a union of two souls for life and hence partners could be appointed as guardians of each other.

Reference to Earlier cases by the High Court

  • In Saira Banu Muhammad Rafi vs State of Tamil Nadu, a similar case was filed before the High Court of Madras where the wife of one Muhammad Rafi sought a direction from the Court to appoint her as the guardian of her husband for managing his immovable properties as he was in a coma. The Court did so for the purpose of his wife dealing with his immovable properties and also for operating his bank accounts.
  • In Shobha Gopalakrishnan vs the State of Kerala, the Kerala High Court invoked its writ jurisdiction in a similar case. Perceiving that no remedy was provided under any statute to patients in a comatose state, it was held that the High Court would invoke its jurisdiction under Article 226, in such cases.
  • The Delhi High Court in Vandana Tyagi vs Government of National Capital Territory where the petitioners sought to remedy through their grievance against the State Bank of India for disallowing them to have recourse to the Public Provident Fund (PPF) account of their deceased father.

Therefore, it was held that in such circumstances, there is no doubt that theoretically, the wife could be the best guardian for her husband who is under a state of incapacity or disability on account of being in a comatose condition or vegetative state.

The Bombay High Court thereby affirmed that a spouse could be the best Guardian for his/her spouse and thus, appointed the spouse of a comatose man as his guardian for making it easier for her to access her husband’s finances to help to bear the costs of the family.

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An Employee cannot be Removed or Reduced in Rank Due to Disability – HC

An Employee cannot be Removed or Reduced in Rank Due to Disability – HC

A disability is defined as a condition or function judged to be significantly impaired relative to the usual standard of an individual or group. The term is used to refer to individual functioning, including physical impairment, sensory impairment, cognitive impairment, intellectual impairment mental illness, and various types of chronic disease.

The Rights of Persons with Disabilities Act was formed with the main objective to uphold the dignity of any person in the society and prevent any discrimination against any individual in the name of disability.  It just speaks of “inclusive society”, accepting every person, irrespective of disability, if any.

The main objective includes –

  • respect for inherent dignity
  • non-discrimination
  • inclusion in society
  • respect for difference and acceptance of persons with disabilities
  • equality of opportunity
  • accessibility
  • equality between men and women
  • respect for the rights of the children with disabilities.

The Punjab and Haryana High Court has passed a  ruling reaffirming the right to work and confirming that a person with a physical disability has the right to continue his job and a mere disability cannot be a reason to terminate employment and discontinue his services in the case of Rawel Singh vs State of Punjab and Others.

Submissions by Petitioner

The petitioner contended that although he was 75% physically challenged but the respondents were arbitrarily not allowing him to continue till the age of 60 and pressuring him to go on voluntary retirement at the age of 58 years where there were two years left till his retirement in violation of the Persons with Disabilities (Equal Opportunity, Protection of Rights and Full Participation) Act, 1995.

Submissions by Respondent

  • State counsel filed a reply wherein it was stated that the increase in age of retirement from 58 to 60 years for disabled employees was not unconditional but subject to the condition that they should be mentally and physically fit to discharge the duties of the post.
  • A copy of the medical report of the Civil Surgeon wherein it was mentioned that the petitioner was examined by the Board of Doctors and it was found that the petitioner was disabled to the tune of 75% as he was suffering from severe ataxia as assessed by the department of neurology was also filed.
  • It was also stated that he was unable to walk independently and could not carry out activities of daily living like bathing, dressing, transferring and eating independently.
  • In their opinion, the petitioner could not carry out his office work as Junior Assistant.

Observations of the High Court

  • It was obvious that the respondents were being insensitive and indifferent to the plight of a challenged employee which is contrary to the objective of the Persons with Disabilities (Equal Opportunity, Protection of Rights and Full Participation) Act, 1995.
  • The object of the Act was to provide congenial work environment keeping in view the disability of the employee.
  • Merely because the employee could not carry out work as Junior Assistant, it cannot be taken that he would be unfit to discharge any other job
  • Section 47(1) of the Act stipulated that no establishment could dispense with or reduce in rank an employee who acquired a disability during his service.
  • In the event, he was found to be not suitable for the post he was holding, he had to be shifted to some other post with the same pay scale and service benefits.
  • It was further provided that if it was not possible to adjust the employee against any post, he may be kept on a supernumerary post (a supernumerary post is a post created for accommodating a permanent officer) until a suitable post is available or he attains the age of superannuation, whichever is earlier.

The HC issued interim directions to the respondents that the petitioner shall be taken back in service in the same pay scale and adjusted at suitable post whereat he may work online from home in view of Covid-19 pandemic.

In this judgment, the High Court has seized an opportunity to hold the governments and employers accountable as they have not done enough to transfer benefits enshrined in the law to the beneficiaries. The disability rights discourse seems to have found momentum once again. These fine judgments have reinforced the disabled-friendly judicial activism.

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